Insurance is a legal agreement between two parties. The insurer and the insured, also known as insurance coverage or an insurance policy. The insurer provides financial coverage of the insured's losses that the insured can bear under certain circumstances. Let's take a closer look at what is the principles of insurance and how it works, the concepts and insurance.

Insurance is a legal agreement between two parties. The insurer and the insured, also known as insurance coverage or an insurance policy. The insurer provides financial coverage of the insured’s losses that the insured can bear under certain circumstances. Let’s take a closer look at what is the principles of insurance and how it works, the concepts and insurance.

Definition and Meaning

The policyholder pays a certain amount called a ‘premium’ to the insurance company against which the latter provides insurance cover. The insurer ensures that it will cover the policyholder’s losses subject to certain terms and conditions. The premium payment decides the sum insured for the insurance coverage or the “policy limit”.

Basic Insurance Principles

There are six basic principles that must be met, that is, insurable interest, maximum good faith, proximate cause, compensation, subrogation and contribution.

1. Insurable interest

The right to insure that arises from an economic relationship between the insured and the legally recognized insured. The interest a person has in something, such as a particular piece of property or another person, meaning that the person would suffer a loss if that property or person were damaged. You can only buy insurance for something or someone in which you have an insurable interest under insurance law.

2. Most good faith

An action to disclose accurately and completely, all material facts (material fact) about something that will be insured is requested or not. The meaning is that the insurer must honestly explain everything clearly about the extent of the insurer’s terms / conditions, and the insured must also provide a clear and correct for the insured’s objects or interests.

3. Proximate Cause

is an active cause, an efficient cause, a chain of events that leads to a result without the intervention of the beginning and working actively from a new and independent source. It is the immediate cause of a loss occurrence. The proximate cause principle refers to the primary cause of an event. It could also be the most serious incident that leads to the loss event. The insurer will entertain the claim only if this significant cause is close enough to the loss.

4. Indemnity

A mechanism by which the insurer provides financial compensation to restore the insured’s financial position prior to the loss. Indemnity is a two-party agreement in which one party agrees to compensate the other for any damages or losses incurred. In exchange for monthly or annual premiums, indemnity insurance protects the policyholder from indemnity claims. If a professional or company causes harm or harm to a third party, an indemnity insurance policy can help cover the policyholder’s settlement and legal fees.

5. Surrogacy

Request for transfer of right from the insured to the insurer after a claim is paid. When you file a claim, your insurer may attempt to recover costs from the person responsible for your injury or property damage. This is known as surrogacy. For example: Your insurance company pays your doctor for your treatment after a car accident caused by someone else.

6. Contribution

Although the insurer has the right to invite any other person equally to bear, but it does not have the same obligations towards the insured to participate in the provision of compensation. Contribution, as used in the insurance industry, is the holding principle that two or more insurers, each of whom is responsible for a covered loss, should participate in paying for that loss.

7. Loss minimization

According to the Loss Minimization Principle, the insured must always do everything possible to minimize the loss of his insured property, in case of sudden events such as fire, etc. The insured must take all necessary measures to control and reduce losses and save what is left.


An insurance policy performs several functions and comes with multiple benefits. The following are some of its most important advantages, as well as some of its secondary benefits; the rest are optional. The following are the basic functions of its coverage:

1. Provides protection

Its coverage reduces the impact of loss one sustains in dangerous situations. Provides monetary reimbursement during financial crises. It not only protects the insured from financial problems, but also helps to control the mental stress that results from it.

2. Provides certainty

Insurance coverage provides a sense of security to the insured. The insured pays a small portion of his or her income for the assurance that it will be useful in the future. Therefore, there is the certainty of a beautiful financial aid against the premium. It will protect the purchaser of the policy when they encounter accidents, dangers or vulnerabilities.

3. Shared risk

The very way the insurance policy works makes it a cooperative scheme. An insurer could not pay with its capital. An insurance company pools group risks and premiums because it covers a large number of people exposed to risk. The payment to which the insurance coverage is claimed is outside of this fund. Therefore, all insureds share the risk of the one who actually suffered the loss.

4. Value of risk

The insurance policy evaluates the volume of risk and also anticipates the various causes of it. Evaluates insurance coverage amount and premium payment amounts based on value of risk. Protects against unforeseen events and consequential losses.
Above were the main benefits of an insurance coverage policy. Apart from the foregoing, it also has some additional benefits and secondary functions, such as those listed below:

5. Capital Generation

The fund generated from the various premiums acts as a common investment for the insurance company. Insurers invest this lump sum in money market instruments. For example, in stocks, mutual funds and other productive channels. This helps generate revenue and profit for the business. Protects against loss of capital for the company.

6. Economic growth

Insurance policies mobilize domestic savings to provide financial stability. It is also addressed to the mitigation of losses due to damage or destruction for the insured community. It not only distributes risks equally, but also promotes trading and trading using the fund.

7. Saving habits

Insurance policies help instill saving habits among people. They keep a portion of the income to pay premiums that will act as a guard against unknown future situations. Many plans come as insurance with savings or with investment schemes. This further encourages people to save and invest.


Insurance is a way to manage your risk. When you buy, you buy protection against unexpected financial loss. The insurance company pays you or someone you choose if something bad happens to you. If you do not have insurance and an accident occurs, you may be responsible for all related costs.


In life, any unexpected situation can disturb the well-being of your family. For such scenarios, different types of life, health and general insurance policies are available in the world that offer comprehensive financial protection for you and your loved ones. In addition, you can also opt for coverage to protect your assets and property. However, before purchasing an its policy, it is imperative to understand the different types of insurance policies available in India and then choose the ones that suit your unique needs.

1. General Insurance

The following are some of the types of general insurance available in the world:

1. Health
2. Car
3. Home
4. Fire
5. Travel

2. Life Insurance

There are various types of life insurance. The following are the most common types of life it plans available in the world:

1. Term life
2. Whole Life
3. Staffing Plans
4. Unit-Linked Plans
5. Plans for children
6. Pension Plans


By Sajid Saleem

An expert engaged in a profession or branch of learning. Education is concerned with the study of mental processes and behavior of people as individuals or in groups, and applies this knowledge to promoting the adaptation and development of education or profession. Review key concepts and explore new topics. We are specialist trainers and responsibly trying to increase productivity by giving new skills and knowledge to the teachers. We write very helpful content for teachers to improve their classroom teaching. So that They may use seminars, lectures, and team exercises to update their skills on institutions goals and procedures.

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